Additions in Scrutiny Assessments under CASS on ground(s) not in notice

In scrutiny assessments, as a part of the regular procedure, a notice is served u/s 143(2) of the Income Tax Act & the AO proceeds to ask for some information by issuing notice u/s 142(1) & after getting replies from the assessee, proceeds to frame the assessment u/s 143(2).

These days, the initial notices served u/s 143(2) also mention the reasons for selecting the case for scrutiny under CASS.

However, sometimes it so happens, that the AO accepts the contentions put forth by the assessee with respect to the reasons mentioned in the initial notice served, but goes on to make additions on some other ground, which has no mention in the initial notice issued.

The moot question that arises is whether the AO has followed appropriate procedures laid down by CBDT while making additions on the grounds that are not communicated to the assessee, without seeking approval from higher authorities, even in the cases which are not cases of “Limited Scrutiny”. This very question came up before Hon’ble ITAT Pune in case of Ganadhiraj Mazoor Sahakari Sanstha Ltd vs ITO – ITA no 10/PUN/2019 – AY 2015-16, decided on 24.06.2019

Facts of the case –

The term used in the notice u/s 143(2) was “Complete Scrutiny”” but it was mentioned in the reasons that case was selected for “low profits shown by the assessee”. During the course of assessment proceedings, the AO accepted the contentions made by the Assessee & therefore no addition was made on the said ground. However, the AO, verified the claim of deduction u/s 80P(2)(a)(vi) & came to conclusion that the assessee is not entitled to the same.

The assessee went in appeal before CIT-A, who upheld the AO’s order & therefore the matter was brought before ITAT.

ITAT after verifying facts & relevant CBDT Instructions on the subject, & upon going through the judicial precedents came to the conclusion that “The issue which arises in the present case is squarely covered by the earlier order of the Tribunal and in the absence of any permission received from the Principal Commissioner or the Commissioner, I find no merit in the order of Assessing Officer in making the aforesaid addition on an issue which was not the basis for selection of the case under CASS.”

Conclusion –

This decision being based on number of other decisions handed out by the same as well as different other tribunals stresses the importance of CBDT instructions & need by the Revenue officers to follow the same meticulously.

On Tax payers part, it will be worthwhile for him to check whether he has suffered any such additions in his assessments